Return predictability in the treasury market
Subtitle: real rates, inflation, and liquidity
By: Carolin E. Pflueger, Luis M. Viceira
Contributors: Viceira, Luis M.; Harvard Business School
Series: Working paper / Harvard Business School -- 11-094; Working paper (Harvard Business School) -- 11-094
Publisher: Harvard Business School
Published: 2013
Place of publication: Boston]
Language: eng
Number of pages: 47
Work titles: Empirical decomposition of risk and liquidity in nominal and inflation-indexed government bonds
Description: This paper decomposes excess return predictability in U.S. and U.K. inflation-indexed and nominal government bonds. We find that nominal bonds reflect time-varying inflation and real rate risk premia, while inflation-indexed bonds reflect time-varying real rate and liquidity risk premia. These three risk premia exhibit quantitatively similar degrees of time variation. We estimate a systematic liquidity premium in U.S. inflation-indexed yields over nominal yields, which declined from 100 bps in 1999 to 30 bps in 2005 and spiked to over 150 bps during the crisis 2008-2009. We find no evidence that shocks to relative inflation-indexed bond issuance generate return predictability.
Notes: "March 2011. (Revised April 2013.)"--Publisher's Web site.

Revision of An empirical decomposition of risk and liquidity in nominal and inflation-indexed government bonds.

Includes bibliographical references (pages 43-47).